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Japan's April-June GDP upgraded, pointing way to sales tax hike

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(GlobalPost/GlobalPost)

Japan's economy expanded at a much faster pace than initially estimated in the three months through June, the government said Monday, suggesting the environment necessary for a sales tax hike is being established.

With the success of Tokyo's bid to host the 2020 Summer Olympics sparking hopes of benefits to the Japanese economy through industries such as construction and tourism, some analysts believe the barriers to Prime Minister Shinzo Abe's plan to implement the tax hike as scheduled next year have been almost removed.

The economy grew at an annualized rate of 3.8 percent during the second quarter of 2013 in inflation-adjusted terms, upgraded from initial data on the back of a sharp upward revision to capital spending.

The April-June growth in real gross domestic product, or the total value of goods and services produced at home, corresponded to a 0.9 percent rise from the previous quarter, the Cabinet Office said.

The government said in the initial report Aug. 12 that the country's economy expanded a real 0.6 percent on the quarter, or an annualized real 2.6 percent, during the period, buoyed by an increase in exports and healthy consumer spending.

Business investment spending grew 1.3 percent, upwardly revised from the 0.1 percent drop reported in the preliminary data, posting the first growth in six quarters.

"Corporate performance was confirmed to be improving as business investment turned positive," said Mitsumaru Kumagai, chief economist at the Daiwa Institute of Research, adding, "The April-June revised GDP data, considered a key indicator for a decision on the consumption tax hike, suggested it will be implemented as planned."

Policymakers emphasized the achievements of the government's efforts at jump-starting the nation's economy out of two decades of deflation, acknowledging the GDP data may push Abe to raise the sales tax rate to 8 percent from the current 5 percent next April.

The growth figure in the April-June period is "another positive factor" for the tax hike, economic and fiscal policy minister Akira Amari told reporters.

Chief Cabinet Secretary Yoshihide Suga, the government's top spokesman, said at a press conference, "I honestly think (the growth rate) was better than I expected...The prime minister will make a judgment (on the tax matter), taking this into account."

Abe has said he will decide in early October whether to raise the tax rate as scheduled, after examining the results of the Bank of Japan's Tankan business sentiment survey due out Oct. 1.

News that Tokyo will host the Olympic Games seven years later could also pave the way for Abe to declare the tax hike, as increases in government expenditure on infrastructure and the number of foreign visitors could help shore up the economy.

"Opinions calling for a delay in the tax hike are likely to disappear," said Tatsuhiko Yoshizaki, executive vice president of the Sojitz Research Institute.

As a nonbinding target in implementing the consumption tax hike, legislation enacted last year stipulates that the government will seek to attain nominal economic growth of around 3 percent and real growth of about 2 percent.

The 3.8 percent growth in the April-June period, following a 4.1 percent growth in the first quarter of 2013 and 1.1 percent rise in the last three months of last year, surpassed the target.

A sales tax hike is widely regarded as key to Japan's fiscal rehabilitation, as the country's fiscal health is the worst among major developed economies with its public debt level at more than 200 percent of GDP.

Some lawmakers and government officials, however, have asked Abe to put off the planned tax hike or slow the pace of it, arguing the tax measure would weigh on consumer spending and business investment, in turn choking economic growth.

The consumption tax rate is scheduled to be raised further to 10 percent in October 2015 to cover swelling social security costs at a time when Japan's population is aging.

In the April-June quarter, private consumer spending, the biggest component accounting for around 60 percent of Japan's GDP, was slightly downgraded to 0.7 percent growth from a 0.8 percent climb.

Exports went up 3.0 percent, while imports rose 1.5 percent, the same as in the initial report.

Japan's exports showed signs of recovery, with the premier's economic policies dubbed "Abenomics," centering on drastic monetary easing by the Bank of Japan and massive public spending, driving down the yen.

In nominal terms, or unadjusted for price changes, the economy grew 0.9 percent quarter on quarter, or an annualized 3.7 percent, in the three months through June, upgraded from 0.7 percent and 2.9 percent, respectively, in the preliminary data.

==Kyodo

http://www.globalpost.com/dispatch/news/kyodo-news-international/130909/japans-april-june-gdp-upgraded-pointing-way-sales-tax-